--H1--

Foreclosures fall for second straight month

By Julie Haviv

NEW YORK (Reuters) - U.S. mortgage foreclosure filings fell for a second straight month in September, but remained near a record high, amid ongoing and sweeping efforts to keep borrowers in their homes, a report released on Thursday showed.

Foreclosure filings -- including mortgage default notices, house auctions and home repossessions by banks -- were reported on 343,638 properties in September, down 4 percent from August, but up 29 percent from the year-earlier month, real estate data firm RealtyTrac said.

September's decrease was much bigger than August's month-on-month drop of less than 1 percent from July's all-time high, indicating foreclosure prevention efforts may be gaining traction.

Despite the monthly decrease, September's total was still the third highest monthly total since the RealtyTrac report began in January 2005, behind only July and August of this year, Irvine, California-based RealtyTrac said.

Foreclosures that were delayed by various state and federal moratorium that mostly ended in March have been pushing through the system and analysts say the Obama administration's housing rescue plan has been slow to take hold.

REOs, or real estate-owned properties, rose to 87,821 in September from 76,134 the previous month, RealtyTrac said. Activity in the third quarter reached a record level.

Foreclosure filings were reported on 937,840 properties between July and September, a 5 percent increase from the previous quarter and an increase of nearly 23 percent from the same period a year earlier, the company said in its U.S. Foreclosure Market Report.

One in every 136 U.S. housing units received a foreclosure filing during the third quarter -- the highest quarterly foreclosure rate since RealtyTrac began issuing its report in the first quarter of 2005.

"Bank repossessions, or REOs, jumped 21 percent from the second quarter to the third quarter, corresponding to jumps in defaults and scheduled auctions in the previous two quarters," James J. Saccacio, chief executive officer of RealtyTrac, said in a statement.

"REO activity increased from the previous quarter in all but two states and the District of Columbia, indicating that lenders may be starting to work through some of the pent-up foreclosure inventory caused by legislative delays, loan modification efforts and high volumes of distressed properties," he said.

Some people believe current housing-rescue efforts fail to address current drivers of foreclosures, namely borrowers with good credit who have lost their jobs and cannot afford to make any mortgage payments.

There are also borrowers who have complex mortgages that cannot be easily modified without writing down the loan balance, which is something mortgage companies have been hesitant to initiate.

Nevada, once one of the hottest U.S. real estate markets, continued to document the nation's highest state foreclosure rate in the third quarter, with one in 23 housing units receiving a foreclosure filing -- nearly six times the national average.

Foreclosure filings were reported on 47,925 Nevada properties during the quarter, an increase of nearly 10 percent from the previous quarter and an increase of nearly 59 percent from the third quarter of 2008.

Arizona posted the nation's second highest state foreclosure rate in the third quarter, with one in every 53 housing units receiving a foreclosure filing. Foreclosure filings were reported on 50,342 Arizona properties during the quarter, an increase of about 5 percent from the previous quarter and an increase of nearly 25 percent from the third quarter of 2008.

California, the most populous U.S. state, posted the nation's third highest state foreclosure rate, also with one in every 53 housing units receiving a foreclosure filing during the quarter.

Foreclosure filings were reported on 250,054 California properties during the quarter, a decrease of nearly 2 percent from the previous quarter, but an increase of nearly 19 percent from the third quarter of 2008.

Other states with foreclosure rates ranking among the top 10 in the third quarter were Florida, Idaho, Utah, Georgia, Michigan, Colorado and Illinois.

--H2--

Foreclosures rise 5 percent from summer to fall

By ALAN ZIBEL, AP Real Estate Writer

WASHINGTON -- The number of households caught up in the foreclosure crisis rose more than 5 percent from summer to fall as a federal effort to assist struggling borrowers was overwhelmed by a flood of defaults among people who lost their jobs.

The foreclosure crisis affected nearly 938,000 properties in the July-September quarter, compared with about 890,000 in the prior three months, according to a report released Thursday by RealtyTrac Inc. That puts foreclosure-related filings on a pace to hit about 3.5 million this year, up from more than 2.3 million last year.

Unemployment is the main reason homeowners are falling into trouble. While the economy is likely out of recession, the unemployment rate  isn't expected to peak until the middle of next year.

Mortgage companies sometimes allow unemployed homeowners to defer three to six months of payments while they are looking for a job. But there's little else they can do.

"The sheer scale of the problem is preventing the loan modification programs from having the kind of impact we'd all like" said Rick Sharga, RealtyTrac's senior vice president for marketing.

Last week, the Obama administration hailed a milestone in its mortgage relief effort, reporting that 500,000 homeowners have received help since the program was launched in March. But new defaults are still exceeding the number of borrowers getting help.

Mortgage companies have slowed down the pace of foreclosures as they evaluate whether borrowers qualify for the administration's program. Analysts, however, forecast that many of those homeowners won't qualify, and foresee a new wave of foreclosed properties hitting the market next year. That's likely to further depress home prices.

Some homeowners are in such a massive financial hole that it's hard to design a modification that will actually provide lower payments. And some have avoided paying their monthly bills for a long time.

Carlos Estrada, 57, of Tulare, Calif., for example, hasn't made a mortgage payment since February 2008. The construction jobs that kept him working more than 40 hours a week during the housing boom have all but vanished.

Earlier this year, he turned down a modification offer from Bank of America because it would have incorporated his unpaid balance and raised his monthly bill. But a bank spokeswoman said Wednesday that Estrada's foreclosure sale had been postponed until late next month while the bank reviews whether he can qualify for help.

"I'm still here waiting for them to help me resolve this situation," Estrada said in Spanish.

According to the RealtyTrac report, there were nearly 344,000 foreclosure-related filings last month, down 4 percent from a month earlier but still the third-highest month since the report started in early 2005.

It was the seventh-straight month in which more than 300,000 households receiving a foreclosure filing, which includes default notices and several other legal notices that homeowners receive before they finally lose their homes.

Banks repossessed nearly 88,000 homes in September, up from about 76,000 a month earlier.

On a state-by-state basis, Nevada had the nation's highest foreclosure rate in the July-September quarter. Arizona was No. 2, followed by California, Florida and Idaho. Rounding out the top 10 were Utah, Georgia, Michigan, Colorado and Illinois.

--H3--

At foreclosure auctions, broken dreams on sale

By James B. Kelleher

The seven-bedroom, three-bath house in this city's West Garfield Park neighborhood had once been someone's American Dream.

But at a recent auction of about 100 foreclosed houses and condos, it was just Property No. 20 -- and drawing no bids from a roomful of buyers despite its bargain-basement price.

"Any interest in this home at $7,000?" fast-talking auctioneer Renee Jones asked the crowd. "If not, we'll move on."

Saddled with swollen portfolios of foreclosed and unsold properties in the housing crisis, U.S. lenders and builders are turning to professional auctioneers to help them unload the unwanted real estate in a hurry.

It is an open question whether the auctions indicate that the U.S. real-estate market is recuperating or is still in intensive care.

But the rapid-fire, under-the-hammer sales -- usually resorted to only after every other effort to market a property has failed -- are on the rise across the United States, providing a colorful burst of activity in a corner of the weak economy that needs all the life it can get.

"Over the last two years, we've progressively seen more and more of these," said Chris Longly, the deputy executive director of the National Auctioneers Association trade group. "It's a sign of the times."

Hard data on the number of foreclosed properties being sold at auction are hard to come by. "The foreclosure market is a moving target right now," said Dave Webb of Hudson & Marshall, one of the biggest auctioneers in the market.

But Hudson & Marshall and its rivals say they are gearing up for more in the coming months, convinced that a moratorium on foreclosures earlier this year only postponed what they believe is an inevitable avalanche of new repossessions.

"The foreclosures are going to explode again," said Webb.

DREAMS ON THE CHOPPING BLOCK

The cadence and rhythm of the auctions, and the great deals that many buyers walk away with, make the events exciting to watch -- and make it easy to forget the heartache that lies behind almost every forced property sale in a country where home ownership is often equated with "The American Dream."

At the weekend Chicago event, Jones managed to race through the 100 properties up for bid in less than two hours.

When a home did not immediately attract interest or the minimum price, Jones, wielding her gavel in front of a giant tote board, wasted no time moving on.

Kendi Kiogora, a 28-year-old first-time home buyer, said she felt like she "won the lottery" when she bought a one-bedroom, one-bath apartment in Chicago's trendy South Loop neighborhood, with skyline views and heated parking, for just $105,000 -- $62,000 less than its last listed price.

Real-estate professionals in attendance were less euphoric.

Antonette Taylor, an agent at a brokerage that plans to start holding auctions this fall, said the low prices -- most sold for 30 to 50 percent below their last deeply-discounted list price -- made her "a little nervous for my sellers."

Other troubling signs: buyers passed on almost half the properties offered in Chicago and fewer than 100 bidders showed up for the event, which also attracted some online buyers.

"We're having a difficult day," said Tom Atkins of Zetabid, the company holding the auction. "There was a $1,000 property that no one bid on. You'd think a slum lord at the very least would buy it and put a (federal housing assistance voucher) renter in there for $600 a month." 

Atkins said bidders at auctions are generally evenly split between first-time homebuyers and veteran investors. Zetabid has a special VIP area near the auctioneer's dais so bidders can raise their paddles with one hand even as they sign contracts with the other.

Among the investors was Thomas Smith, 48, who paid $16,000 for a five-bedroom, three-bath home in Englewood, a notoriously violent neighborhood on Chicago's South Side he called "the murder capital of the world."

Smith figured another $15,000 in repairs would render the place rentable and said his ideal tenants would be "people...who fell off the ladder a little bit. I'm not trying to make a million dollars or anything."

BETTER THAN NOTHING

Later, when the nine-bedroom, four-bath property that David Kosak's boss had been trying to sell for a year went under the hammer, it fetched just $15,000 -- less than one-third its last list price but a figure the 23-year-old broker's assistant called "better than anything we've gotten."

Asked if he thought the auction activity might be a sign the property market was improving, Kosak was less upbeat.

"If it's getting better, we're not seeing it," he said. "We only do foreclosures, and we're only getting busier."

Whitney Tilson, a managing partner of T2 Partners and Tilson Mutual Funds and the author of "More Mortgage Meltdown: 6 Ways to Profit in These Bad Times," said there is a reason Kosak's office is getting busier.

After Barack Obama's election as U.S. president last year, Fannie Mae and Freddie Mac, the two government-sponsored mortgage giants, imposed a foreclosure moratorium that lasted about four months. Many private banks followed suit.

As a result, there was a gap in the pipeline of foreclosed homes that pushed into late spring. That helped auction prices stabilize for a few months and permitted some analysts to claim the market had found its bottom.

But the moratoriums have now expired. With the mortgage modification and foreclosure prevention efforts championed by the Obama administration unable to keep pace with defaults, as many as 7 million homes and condos may eventually enter foreclosure before the dust finally settles, according to a report by Amherst Securities Group issued in September.

"There are a lot of things that have temporarily stabilized the market," Tilson said. "But those things are going away ... Delinquencies are spiking. This is going to be a mess." 

--H4--

Cost Concerns Surface Over Home-Buyer Credit

By JOHN D. MCKINNON

WASHINGTON -- Analysts and lawmakers are voicing concerns about the cost and usefulness of the tax credit for first-time home buyers, a piece of federal housing-market aid that Congress is considering extending or even expanding.

The measure, adopted in the February economic-stimulus package, gives first-time home buyers an $8,000 tax credit. It was intended to give a jolt to the moribund real-estate market, at least through its scheduled expiration in November. Some analysts and many in the housing market call it a vital prop.

A number of House Democrats, however, are expressing reservations about a big extension or expansion of the credit, particularly one that isn't offset with tax increases or spending cuts.

House Majority Leader Steny Hoyer (D., Md.) favors only a one-month extension for now, said his spokeswoman, and wants Congress to offset any new cost.

"I don't think there's a majority in Congress ready to sign onto a very large unpaid-for extension or expansion," said Rep. Earl Pomeroy (D., N.D.), an influential member of the House Ways and Means Committee.

Some more-liberal Democrats, meanwhile, worry about expanding the credit beyond first-time home buyers. Ways and Means Chairman Charles Rangel (D., N.Y.), for instance, says he favors extending it but doesn't see the need to expand it.

As a result of the concerns, "I'm not as optimistic about expansion as I am about extension, but I certainly haven't given up on it either," said Jerry Howard, president of the National Association of Home Builders.

Leading proponents of the credit would like to extend it at least to next summer, and make it available to all home buyers. They also want to raise the income limits to $150,000 for an individual or $300,000 for a couple. That would cost about $16.7 billion. Currently, the credit phases out for individuals earning more than $75,000 and married couples earning more than $150,000.

To keep the credit alive, some lawmakers are considering ways to offset its cost, for instance, by taking back unspent funds from the $787 billion stimulus bill, said Sen. Johnny Isakson (R., Ga.).

To persuade Congress to reallocate stimulus funds, supporters will have to show that the home-buyer credit would generate more jobs than the stimulus bill would, Mr. Pomeroy said.

Ted Gayer, a scholar at the liberal Brookings Institution, argued in a recent paper that the credit costs the government about $43,000 for each additional home sale it produces. That is because most of the two million or so home buyers expected to claim the credit would have bought a house anyway. Only about 350,000 were additional buyers. Expanding the credit to make all home buyers potentially eligible would swell the government's cost per additional home sale to more than $250,000, said Mr. Gayer, co-director of economic studies at Brookings.

Economists at the National Association of Realtors said they don't disagree with Mr. Gayer's analysis of the existing credit's cost to the government. But they said he plays down the impact the program is having in supporting home prices and related expenditures.

--H5--

US Housing Market Could Take Double-Dip Down In 2010

By Steve Kerch

Despite signs of stabilization at the end of 2009, next year could prove treacherous for the housing and mortgage markets as a variety of woes could rekindle the falloff of the last two years, according to mortgage-industry veterans speaking at the Mortgage Bankers Association annual convention in San Diego Tuesday.

"I'm a firm prophet of the 'W' shaped recovery. Housing is going to go down again in the first quarter of 2010," said Steve Horne, chief executive of Wingspan Portfolio Advisors, a firm that facilitates loan modifications. "The real healing won't begin until all these nonperforming loans start trading in earnest, until we get these borrowers back on their feet."

David Lowman, CEO of Chase Home Lending, also thinks the mortgage market could run into trouble early next year, especially if the Federal Reserve ends its purchases of mortgage-backed securities, a strategy that has artificially supported liquidity and kept mortgage rates at historic lows.

"A lot does depend on how long the government keeps its buying up," he said. "Rates are at all-time lows, but once the buying stops we're going to come to a pretty hard stop. We're likely to see a much smaller mortgage market after the second quarter and later in 2010." 

 "We still have a crisis in the number of people who can't pay their mortgage, and we haven't seen the peak of that yet. It's going to weigh on us for several years," he said.

The official economic forecast from the MBA isn't so gloomy. Jay Brinkmann, the trade group's chief economist, predicts sales of both new and existing homes will rebound strongly in 2010 as mortgage rates remain relatively low, although mortgage originations will fall as refinancing activity falls by more than 40%.

"Housing starts will be up, but they will still only be half of what they were at the peak in 2007," he said. "And sales will be up, but they will remain concentrated in the lower end of the market. There are still strains on the McMansion market."

Despite the uncertainty of what will happen when the Fed pulls its support from the mortgage-securities market, Brinkmann said mortgage rates should still be relatively low in 2010, gradually moving up to just over 5 1/2% from just under 5% today.

"There are some green shoots - fewer houses on the market, rising sales and stable prices in some markets. But the environment is fragile right now," said Barbara Desoer, president of Bank of America Home Loans and Insurance.

Among the other issues the mortgage industry still must wrestle with: the uncertain fate of government-sponsored mortgage agencies Fannie Mae and Freddie Mac, pending regulatory changes that are still under debate and a growing unease over the soundness of the Federal Housing Authority, which has come to dominate the mortgage-origination market in the wake of the financial crisis.

"There is liquidity on the sidelines, but there is so much fear out there," said Daniel Crockett, CEO of Franklin American Mortgage, a Franklin, Tenn.-based mortgage banker that operates in 48 states. "It's going to be a couple of years of a really tough environment."

The bigger concern may be unemployment, which Brinkmann predicts will hit 10.2% by mid-2010. The continued bad news on the job front is sure to push delinquencies and foreclosures to new records next year.

"We're just getting into a lot of prime-mortgage resets, so we're a long way from the bottom. For short sales we're looking at another two or three years of strong activity," said Jim Satterwhite, chief operating officer of National Quick Sale, a Jacksonville, Fla.-based company that negotiates short sales on homes that are valued less than what they are mortgaged for.

"Some markets have seen better price stability, but they are not going up yet. But it will still be two or three more years before housing even starts to appreciate in some other markets," he said.